Retiring in a crisis – what you need to know.

28th September 2020

Key financial considerations for those planning to retire or facing unplanned early retirement

There is no doubt that COVID-19 has impacted the financial lives of many people, especially those planning to retire or those who find themselves facing an unplanned early retirement.

Latest research from the Centre for Ageing Better and Learning and Work Institute estimates that over a quarter of a million (377,000) of the over 50s are at risk of losing their jobs, and that they are far more likely to slip into long-term unemployment, with just one in three (35%) returning to work quickly, compared to two in three (63%) workers aged 25-34.

WEALTH at work, a specialist provider of financial education and guidance in the workplace, has outlined the answers to some key questions that they are asked at their redundancy and retirement seminars by those planning to retire soon, and those who are facing unplanned early retirement.

1. Can I afford to retire? – If you are nearing retirement age and considering retiring, depending on your circumstances, this may be more achievable than you think. You could use the tax free cash from your pension to pay off any outstanding loans and mortgages, and without these debts you may not need as much as you think to afford retirement.

For example, someone earning £30,000, once they have paid their income tax (£3,020), national insurance (£2,460), pension contributions (£2,400), mortgage (£6,000) and loans (£2,400), may end up with a disposable income of around £13,720 p.a.

Realising that you may only need a retirement income of less than half your salary to maintain your standard of living can be an eye opener and make retirement a more realistic option.

2. How do I maximise my retirement savings? – Instead of using your pension pot as a source of income, many people would be better off using other taxable savings and investments first. If you are able to do this, it would allow your pension savings to benefit from a longer period to hopefully grow in its tax-free environment. Redundancy pay can also be used to boost pension savings, which will be particularly beneficial to people approaching retirement.

3. Do I need regulated financial advice? – Getting regulated financial advice can make a real difference, especially in these concerning times. The cost of advice can put some people off but usually the benefit far outweighs the cost, as an adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and then put a bespoke plan in place for you. It’s important to ensure you review your plan annually as circumstances change.

4. How will I be able to afford unexpected expenses (e.g. car break downs) and future care costs? – Some people we speak to are really concerned with the impact coronavirus has had on their existing investments and as such, worry about how they are going to cover unexpected expenses in retirement, from the car breaking down to the uncertainty of finding the money for future care costs. The reality is that most people are sensible in retirement and adjust their spending according to what they need. Only 4% of people aged over 65 live in care homes in the UK, rising to 15% of those aged over 85So whilst this is something to keep in mind with your financial planning, it isn’t something to necessarily lose sleep about. However, getting regulated financial advice on an annual basis can help you keep your plans on track as your situation changes.

5. How do I protect myself from scams? – Unfortunately scammers often see turbulent times like these, when people are concerned and vulnerable, as an opportunity! In July, Action Fraud reported that victims of coronavirus-related scams had lost over £11million, with it previously stating that pension scams had been among the most common type of fraud during the crisis. Victims of pension scams can be left approaching retirement with a significantly reduced income and in some cases, entire life savings can be lost. It is important to be on your guard. Scammers tend to sound completely legitimate when they contact you and it’s easy to see why so many people are fooled. So, whatever you’re planning to do with your retirement savings, it’s vital to check whether the company that you’re planning to use is registered with the Financial Conduct Authority (FCA). You can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams. Regulated financial advice can also offer added consumer protection should anything go wrong.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “With many redundancies already on the cards and with those over 50 more likely to be affected by this, taking retirement might be a real consideration. This could be a daunting prospect but depending on your circumstances, affording retirement could be more achievable than you think.

Many people we speak to are really concerned with the impact coronavirus has had on their existing investments and as such, worry about affordability including how to cover unexpected expenses in retirement, from the car breaking down to the uncertainty of finding the money for future care costs. Also, it might sound obvious but the longer you live, the more money you are going to need but this can be difficult to predict.

Whilst it can be challenging to deal with this uncertainty, what is certain is the more you plan for retirement and review your plans as your circumstances change, the more likely that you will be able to deal with all eventualities. This is why it is so important for people approaching retirement to get the financial support required through financial education and guidance, and ideally regulated financial advice, so they understand their financial situation and make the most of their retirement savings.”